Crack for the bull: The Fed’s ‘free money’ may give Wall Street a high, but it won’t heal long-term problems—and it could make things worse.AP

Leaders from Brazil to Germany have criticized the Federal Reserve’s project to print up $600 billion in free money. The world fears the move will spur inflation, warping global markets. But one place has more to lose than anyplace else: New York.

Fed chief Ben Bernanke is worried that the US economy remains stalled. So he’s running his own stimulus.

He can’t stimulate people to spend by slashing interest rates; they’re already at zero. So the Fed will ramp up a strategy it tried last year, Bernanke said last week. It will put extra zeroes on the figures in its bank accounts and use this “wealth” to buy government bonds.

This extra money in the economy is supposed to push up stock and housing markets, making people feel richer so they’ll buy stuff, too. Presto — Everything fixed!

The Fed won’t spread its magic money evenly across the economy: The dollar-dropping helicopters will hover over Manhattan, as the Fed dollops the financial industry with this cash. This stimulus will dwarf New York’s $32.4 billion from last year’s “Recovery Act.”

But printing programs aren’t the way to build a healthy financial industry.

At first, the money drop may seem to benefit Wall Street. The extra cash will let banks and investment firms borrow for cheap, pushing up the price of financial assets. Higher prices make Wall Street guys look smart — and allows their firms to take higher profits and pay higher bonuses. Plus, other companies (and states and cities, too) want to take advantage of cheap borrowing — and they’ll pay fees to the banks to do those deals.

That’s how last year’s Fed “stimulus” propelled Wall Street’s profits to a record $61 billion.

The problem is that underneath all of this paper, Wall Street — the engine of New York’s economy — remains badly crippled, thanks to bubbleera injuries. Easy money doesn’t heal it; it just numbs the pain, like a cortisone shot. It may let the Street keep “playing” — at risk of doing itself (and New York) more serious injury.

In fact, it’s a bad omen that Wall Street has gotten flush again, even as it has shed jobs. After modest gains earlier this year, Wall Street by September had lost nearly 3 percent of its people statewide over the year before. It doesn’t take as many people to spin government cash into gold.

What would a healthy turnaround require? Well, thanks to the mortgage and credit bust, banks and investment firms still have way too many bad assets on their books — and they’re having an awfully hard time doing the boring grunt work of foreclosures and loan write-downs to get rid of the stuff. The industry should be focusing on this, even though it doesn’t generate profits or bonuses — just like you’ve got to do your dirty laundry if you want to go out.

At the same time, Wall Street should be easing its dependence on trading for a fast buck, something that didn’t work in the bubble and will get harder, anyway, in light of regulatory “reform.” Financial companies should build up other parts of their businesses, like advising clients.

But now Wall Street could go on another bender with the Fed’s free money — leaving the hard stuff for later. The Fed is making it hard to do the right thing. Good bankers know that there’s little reward for virtue; if they hold back on the strategies that the Fed is encouraging, clients will be angry that they’re not making as much money as everyone else. Anyone who tries to do the right thing will be elbowed out by the opportunists — helping create the next crisis.

And that crisis will come. Banks may follow the Fed in chasing easy returns — but the Fed can’t print forever. When the printing press stops, asset prices will fall — taking financial firms down with them. If the Fed tries to print forever, global investors will dump our bonds, sending markets spiraling downward and harming New York’s future as a safe place for capital.

Either way, New York suffers.

In the short term, even if the Fed propels finance toward big profits again, it makes it that much harder for Gov.-elect Cuomo and Mayor Bloomberg to rein in spending. The public-sector unions will have too good a tale: Bankers, responsible for 20 percent of state tax revenues, are guzzling Champagne, while poor people have no medicine. (Never mind that public workers aren’t poor.)

In the long term, New York needs Wall Street to fix itself — even if that means lean years first. That’s the only way Wall Street can compete globally as Asian and European markets move to take over our business. Instead of getting smarter and leaner, our main industry is growing dumber and more government-dependent — rotting the Big Apple’s future.

Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.